Health groups want TRAIN to include tobacco-tax hike

21 August 2017:

Health organizations in the country are seeking further hikes in the taxes on tobacco products as early as next year by including such measure in the first tranche of the Duterte administration’s Comprehensive Tax Reform Program (CTRP), now known as the Tax Reform for Acceleration and Inclusion (TRAIN).

The Sin Tax Coalition, an organization of about 100 health-care professionals’ associations and civil-society entities, made the appeal to President Duterte as they were alarmed by reports that there will be an additional 1 million smokers in the country by the end of his term in 2022.

Duterte, who is also known for banning smoking in his home province of Davao City aside from his tough stance on illegal drugs, has already implemented a nationwide smoking ban in public places.

The Sin Tax Coalition has proposed for excise taxes imposed on tobacco products to increase to as much as 60 percent in 2018, and an annual hike of 9 percent for the succeeding years.

According to Action for Economic Reforms (AER) senior economist Jo-Ann L. Diosana, the proposal is based on the target of reducing the number of smokers in the country by at least 1 million.

“The proposal is based on our target to have 1 million less smokers [by 2022]. Other proposals that will achieve 1 million less smokers by 2022 include: an 80-percent increase followed by an annual 6-percent increase; or a 100-percent increase followed by an annual 4-percent increase,” Diosana told the BusinessMirror.

The increase in tobacco taxes, the group said, will help also prevent the prevalence of 45 life-threatening illnesses caused by smoking, which inlude lung cancer, chronic lung diseases and stroke.

Current law loses effect

University of the Philippines (UP) College of Medicine Prof. Dr. Antonio Dans noted that inspite of the implementation of Republic Act (RA) 10351, more and more Filipinos are still joining the ranks of smokers.

“The effect of the current sin-tax law on smoking is gone. If we don’t do anything, there will be 1 million new smokers in the country by the end of [the President’s] term in 2022. We propose to reverse this to 1 million less smokers by 2022. Our calculations show this can be achieved by a 60-percent initial increase, and a 9-percent annual increase thereafter,” Dans told the BusinessMirror.

The coalition added that an estimated P210 billion in government revenues is spent on smoking-related diseases, adding that 1 million less smokers would mean 10,000 lesspremature deaths annually.

AER, a fiscal-policy reform organization, said at present, the sin-tax system of the Philippines employs a unitary rate of P30 per cigarette pack with a 4-percent increase in prices thereafter, as mandated by RA 10351, or the Sin Tax Law of 2012.

Since the implementation of RA 10351 in 2012, the smoking prevalence in the country has decreased to 27.06 percent, from the 28.7 percent in the previous year, which also generated revenues for the government amounting to P23.4 billion on its first year of implementation.

When asked if this will trigger an inflation uptick in the country, Diosana pointed out that the increase in excise taxes for tobacco products will be negligible, since the generatedrevenues from the measure will be used to reduce prices of healthy commodities that will benefit poor households. “Its impact on inflation will be negligible, similar to how the higher taxes on tobacco and alcohol had no impact on inflation. Moreover, if the funds that will be generated will be solely used to bring down the prices of fruits and vegetables, especially for the poor households, then the price of healthy food will go down,” she added.

DOF action sought

The AER bared that the proposal was already submitted to the Department of Finance (DOF) for review, but no feedback has been received from the department, yet.

“We have yet to receive an official response from the DOF regarding our proposal. But we are hoping that they will look at this new evidence and be open to including our proposals in TRAIN,” she said. The TRAIN is the first tranche of Duterte’s CTRP consist of five tax-reform packages.

Under the DOF’s CTRP, measures to address health concerns in the country are contained in its fifth package, which includes offsetting measures, from taxing fatty foods, luxury items, mining operations, lottery and casinos, revisiting the taxes on tobacco and alcohol, and creating a carbon tax. From its initial proposal, an estimated revenue gain ofP129.4 billion will be coming from the fifth package.

The coalition said there are now around 14.5 million Filipino smokers, mostly coming from the lowest two quintiles of wealth, resulting in 150,000 deaths a year.

In addition, tobacco predisposes to a major health problem, which leads to illicit-drug use. About 1.5 million Filipinos who tried illegal drugs used tobacco as the gateway.

It added that 14 million Filipinos experienced involuntary hunger in the last quarter of 2016, while 12.5 million more suffer from chronic undernutrition.

Sugary-drinks tax

With this, the AER—like the coalition—also supports the imposition of an excise tax on sugar-sweetened beverages (SSBs), as it is seen to drastically reduce demand for the unhealthy commodity.

“The tax on SSBs is a new tax, so a P10 tax per liter will significantly reduce demand for SSBs. A necessary condition for the tax to be effective in encouraging consumers to shift to healthier alternatives is if the proceeds from the tax will be significantly earmarked for programs that will improve people’s access to healthier foods, say by decreasing the effective prices of fruits and vegetables,” Diosana said.

The proposal to impose a P10 per liter tax on SSBs is contained in House bill 5363, or the House of Representatives’s version of the first package of the CTRP. The P10-per-liter tax is estimated to raise revenues of about P47 billion in the first year of implementation.

Dans added that the health organizations’ proposal also pushes for revenus coming from the taxing of the SSBs to go to the lowering the prices of healthy foods that can aid in the consumers shift to eat healtheir options.

“We actually didn’t support a specific amount. What we did propose is that all revenue in whatever amount, should go to programs that reduce the price of healthy foods, such as fruits and vegetables,” Dans said.

The government could consider imposing a differential-subsidization scheme as a tax measure on SBs to reduce the risks of Filipinos’ becoming diabetic, according to renowned endocrinologist.

In an earlier interview with the BusinessMirror, Dr. Robert Lustig, pediatrics professor at University of California San Francisco (UCSF), also proposed a higher levy on SSBs, with the collection from the sales of sugary drinks to be channeled to subsidies for drinking water. In this tax scheme, Lustig said, the government places a “win-win” situation for both Filipinos and the beverage makers.

“Therefore, people will be able to pay less for water and move toward water, which is good for them as opposed to sugar-based soda, which is bad for them. People will nudge toward water and away from soda because it is expensive,” Lustig told the BusinessMirror on the sidelines of a forum organized by the Philippine Society of Endocrinology and Metabolism and the United Laboratories Inc. recently.

“The beverage makers wouldn’t care because they are the one also making the water. So, they will sell more water and the grocery stores will still make money. Because what do they care? Sales,” Lustig added.

Lustig, who is also an affiliate faculty of UCSF’s Institute for Health Policy Studies, said differential subsidization is a policy that they recommend to countries and governments that are in the midst of imposing tax measures on sugar-based products and other health-risking commodities.

“I think it would be a good idea, so that would be my suggestion,” he said. “I think it could [work] for [the Philippines] if the government supports it. I think it is very doable.”

Lustig said Nordic countries, including Sweden, Denmark and Norway, have imposed a differential-subsidization scheme to curb the increasing number of alcoholics in their respective countries.